“How much rent can I charge for my house?” That is the first question that you should ask yourself when you decide to rent out your house.
There are many aspects to be taken into consideration when deciding on your rent; whether you’re focusing on getting a higher occupancy rate, or you’re basing your decision on comparisons with other competing properties, the following aspects should all be considered before making your decision:
How Much Rent Can I Charge for My House?: The Vacancy Meter
When you’re trying to decide how much rent to charge for your house, you first need to understand the basic relationship between rent and occupancy rate. When it comes to rental properties, the major factor that will affect your earnings and determine whether your rental property is a successful investment or not is the occupancy rate.
When it comes to setting your rent, you will always want to set it so that your occupancy rate is high enough to support your investment. But setting an attractive rent does not always mean that your rent should be low. In fact, setting a rent that is too low compared to the property’s value can actually harm your occupancy rate, as tenants would question the quality of your rental property and why it has such a low rent.
How Much Rent Can I Charge for My House?: Rental Yields
The understanding of rental yields is key when trying to decide how much rent can you charge for your house. Rental yield refers to the percentage of your home’s market value that you should set as rent. For example, if your property’s market value is $500,000, and you set your rent at $2,500/month, then your rental yield would be 6% of your property’s market value per year.
Related: Wondering How to Work Out Rental Yield?
Rental yield can also be looked at as the return on investment, meaning that the higher your rental yield is, the better return on investment you have, leading to a better investment.
How Much Rent Can I Charge for My House?: Square Footage
One of the methods used to decide on your rent is to base it on the average rent per square foot in the area that you’re investing in. This means that if your property exists in an area where the average price per square foot is $1.25 ,and your property size is 500 square feet, then your square foot rent would be $625 per month.
So, in order to decide on the base value of your rent, you would have to multiply the average price per square foot by the square foot size of your property. This, however, should not be the only factor on which you decide on your rent, but should rather give you an idea of the base rent to consider before adding the other factors which will, in most cases, lead to a higher rent than the base value.
How Much Rent Can I Charge for My House?: Motivation
Before asking yourself “How much rent can I charge for my house?”, you should first ask yourself about your motivation for selling the house.
Your motivation for selling the house plays a huge role in deciding the rent that you decide to go with. This is because not all people come to the decision of renting out their houses for the same reasons. If you’re renting out your house for the sole purpose of generating a positive cash flow and enjoying a passive income, then you will probably want to focus on maximizing your rental yield.
Related: How passive is your rental income?
Some landlords, however, come to the decision of renting out their properties for the sole purpose of making more affordable homes available for interested tenants. This means that their motivation should be based on a higher occupancy rate by providing cheap accommodation and building a positive relationship with the tenants.
How Much Rent Can I Charge for My House?: Comparison
You cannot decide on how much rent you can charge for your house without comparing it with other similar properties in the area. In order to get a better idea about your competition and how you can compete for the existing pool of tenants, you will need to know what rents your competitors have set for their rental properties and what makes their rents work.
Related: Everything to Know About Real Estate Comps and How to Find Them
If you find a property that is similar to yours in size and type but has a much higher rental rate, then you need to find out what makes this rental property so successful and how you can add similar value to your investment property in order to achieve a higher rental rate without losing your occupancy rate.
How Much Rent Can I Charge for My House?: Calculations
Before deciding on your rent, there are a number of metrics that should be added to your calculations in order to make sure you’re not losing money on your investment. These metrics mostly consist of the monthly and annual expenses of your property.
Naturally, you start off by setting a floor for your rent; your rent should not be lower than your monthly mortgage payments.
Additionally, you take into account other expected and guaranteed expenses on your investment. These include but are not limited to:
- Reparation, maintenance, and renovation expenses.
- Electricity, water, and gas bills.
- Property management fees.
- Vacancy rate expense.
- Property taxes.
- Landlord insurance.
This is not a complete list of the expenses that should be taken into account when deciding on your rent, so make sure to do more research and ask around about any other expenses that you might’ve missed, as some expenses are area-related and may not apply to other investments.
How Much Rent Can I Charge for My House?: Conclusion
If you’re looking for the best methods to solve your dilemma – “How much rent can I charge for my house?” – why don’t you give Mashvisor a shot?
Related: How to Use Mashvisor’s Rental Property Calculator
Mashvisor can help you find the best investment properties in your area of search, as well as providing you with all the necessary data that you will need to decide on your rent, including the average rent for similar properties in the area, the expenses associated with them, and the return on investment that is to be expected of each specific property.
